Banks in the US Midwest have started tightening agricultural
loan criteria amid expectations of a farm sector slowdown, which saw farmland
prices in the top US corn and soybean producing state falling for the first
year since 1998.
More than one-in-four banks in states including Illinois, Iowa
and Indiana tightened credit standards for farm loans in the October-to-December
period, compared with a year before, according to the Federal Reserve, the US
That compared with a 7% rise reported for the previous
quarter, and contrasted with just 1% of banks which eased lending criteria.
"Credit availability was somewhat more restricted than a
year ago," said the Fed's Chicago bank.
The move by lenders comes amid expectations of a dent to
farm income from lower crop prices, prompted by a sharp rise in yields of major
crops last year and bumpers harvests in many rival exporting countries, such as
In separate signs of a deteriorating, if still relatively
buoyant, agriculture sector financial conditions, a loan repayment index kept
by the Chicago Fed fell to its lowest since 2010, and a loan demand index to a
"Agricultural credit conditions deteriorated," the bank
Despite the rise in loan demand, "in a major reversal from a
year ago", farmers' capital spending on items such as land, buildings and
machinery was seen falling by more than half the lenders surveyed by the Fed,
compared with only less than 10% foreseeing more investment.
'Cast a pall'
The waning prosperity was seen hitting the farmland market
too, with 41% of bankers forecasting lower prices ahead, compared with 3%
"Combined with expectations of diminished farmland purchases
by farmers in 2014, these survey responses cast a pall over the spectacular growth
in agricultural land values of the past few years," the bank said.
Even allowing for inflation, the region's land prices are
nearly twice the level reached at the end of the last boom, in 1979, which
preceded a sharp retreat in values, as interest rates soared.
In fact, farmland prices in the bank's district, which also
covers Michael and Wisconsin, maintained growth in 2013, by 5%, although this
represented a sharp slowdown from the 16% seen in 2012, depressed by the first
fall in Iowa values since 1998.
Prices in Iowa, the top corn and soybean growing state, dropped
2%, compared with 20% growth the year before, hurt by drought as well as the
broader market slowdown.
"A second straight year of drought limited Iowa's output -
Iowa's corn production in 2013 was just 15% higher than in 2012, while
Illinois's corn production was 63% higher and Indiana's was 74% higher," the
Illinois prices rose by 10% last year, while Indiana values